Tom Shepstone
Natural Gas NOW

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There is nothing so maddening as a bad court decision, one that totally ignores the point of it all and creates chaos as a recent PennEast decision does.

I get a lot of my business from lawyers but there are times I have Shakespearian dreams of eradicating the species. My lawyer friends always talk to me out of it by reminding that we all hate lawyers until we need one, which is undeniably true. I’m going to need such counseling again, though, after reading the Third Circuit Court of Appeals ruling against the PennEast Pipeline. I’m angry with the lawyers representing New Jersey, the lawyers for PennEast and the lawyers on the Third Circuit. A pox on them all.

Here is a highlighted version of the Third Circuit opinion, which says PennEast has no right to condemn property interests held by the State of New Jersey. When I first scanned the decision I thought it made some compelling points but, then, I read the superb Marcellus Drilling News analysis by Jim Willis. I got angry. Jim’s eagle eyes focused on a key point I had overlooked in my quick scan; that almost all of the properties involved in the case were not really properties per se but, rather, property interests in agricultural or conservation easements.

The Third Circuit decision focuses on the Eleventh Amendment to the Constitution which, the judges say, gives the State of New Jersey sovereign immunity from condemnation of its property by a private party such as PennEast. That was the argument of the state’s lawyers. PennEast lawyers had argued that, yes, they did have that right because the Federal government had delegated it, through FERC, to PennEast. All three sets of lawyers ignored the point, though, and that’s why I’m angry.

Here is the critical information from the decision (emphasis added and citations omitted):

The Natural Gas Act (“NGA”), allows private gas companies to exercise the federal government’s power to take property by eminent domain, provided certain jurisdictional requirements are met. This appeal calls on us to decide whether that delegation of power allows gas companies to hale unconsenting States into federal court to condemn State property interests.

PennEast Pipeline Company (“PennEast”) is scheduled to build a pipeline through Pennsylvania and New Jersey. The company obtained federal approval for the project and promptly sued pursuant to the NGA to condemn and gain immediate access to properties along the pipeline route. Forty-two of those properties are owned, at least in part, by the State of New Jersey or various arms of the State. New Jersey sought dismissal of PennEast’s condemnation suits for lack of jurisdiction, citing the Eleventh Amendment to the United States Constitution, and, separately, arguing that PennEast failed to satisfy the jurisdictional requirements of the NGA…

We will vacate because New Jersey’s sovereign immunity has not been abrogated by the NGA, nor has there been – as PennEast argues – a delegation of the federal government’s exemption from the State’s sovereign immunity…

Forty-two of the 131 property interests PennEast sought to condemn belong to New Jersey or arms of the State (collectively, the “State” or “New Jersey”). The State holds possessory interests in two of the properties and non-possessory interests – most often, easements requiring that the land be preserved for recreational, conservation, or agricultural use – in the rest.

Yes, the State of New Jersey actually owns but two of the 42 state parcels involved and the other 40 are simply easements for agricultural, conservation or recreational use. The land itself is owned by others who may or may not oppose the PennEast Pipeline. They would be paid market value for it under any condemnation. But, New Jersey says it owns the easements. Therefore, the PennEast would have to condemn those property interests (as well as those of the actual landowners), which is not permitted under the Constitution if the condemnation is pursued under Federal power supposedly delegated from FERC.

As Jim Willis says:

Anti-fossil fuelers will use this new loophole in order to block new pipeline projects. Here’s how it works. A crackpot anti-fossil fueler who doesn’t want a pipeline across his land in Upstate NY calls up Andy Cuomo and says, “Hey Andy, I’ll give you an easement for my property that says my land is only to be used for ‘recreational’ or ‘agricultural’ purposes. The state gets to own the mineral rights under my land, but I’ll own the surface and junk it up any old which way I want to. Deal?” The next day the corrupt Dept. of Environmental Conservation shows up with the appropriate paperwork for the anti landowner to sign. Voila. The state can now block a pipeline from crossing that property. That’s how we see this decision playing out with other pipeline projects.

Jim knows exactly how fractivists work and how easy it is to manipulate corrupt state governments such as Andrew Cuomo’s and Phil Murphy’s. He is 100% correct if this decision stands. Unfortunately, all three sets of lawyers in this case are to blame for this fiasco. That’s because they all argued the wrong points as I see it from the layman side of the fence. The real questions that should have been debated are as follows:

1. Does a state ownership of an easement over land make it a landowner for purpose of condemnation? And, if so, wouldn’t that then interfere with the rights of actual landowners to secure their benefits from the pipeline (e.g., royalties)? Whose interests prevail? Do landowners give up everything when they sell easements? Whose land is it, anyway?
2. How is that a pipeline through a farm with an agricultural easement deprives the State of New Jersey of its interests? We have posted here picture after picture of farming taking place on top of pipelines. There is little or no interference with agriculture. Arguably, pipeline payments to the landowners increase the profitability of farming in the real world. There is, effectively, no condemnation of anyone’s rights by running a pipeline through an agricultural easement.

Why weren’t these points these debated? Blame the lawyers; all of them. I’d better stop at this point because I’m getting angry again. I’m having Shakespearian thoughts.